In the views of Alan et:al (1999:441): “wages may be at award rates, which are set at a minimum, or at some specified level about the relevant rewards, determined by the ‘going rate’ for the area”. They identified the following as the factors that influence pay:
- Regulatory environment
– Minimum award and
– Statutory requirements
- Market forces
– Labour supply and demand
– Regional market differentials
– Job family differentials
– Industry differentials
– Economic environment, which include
Ø Inflation
Ø Unemployment
Ø Labour force participation rate
Ø Skill shortage
- Work Value:
– Knowledge and experience required
– Task complexity
– Type of problems solved
– Responsibility for resources management
– Interpersonal skills
– Impact of the job on the organization
- Remuneration strategy:
– What do we want to reward?
– What can we afford to pay
– What sort of people do we want to attract
– Should we provide benefits? What about other entitlements? e.g
Ø Sick leave
Ø Overtime and super annuation
– Will we have a variable reward programme? e.g
Ø Incentive scheme
- Individual factors:
– The nature of an individual’s contribution to the business
– Performance compared to expectations
– Development of relevant skill/competencies
– Individual or collective bargaining power.
Reward decision brings managers focus on what needs to be achieved in the broader business context. Developing reward plans often forces all levels of management to come to consensus on identifying and measuring the results that are really critical to the business. McAdams (1996) opined that through remuneration (reward) management can make a difference to the success of a business.
The human resource manager, based on the reward policy of the firm, should be able to decide whether the firm is to be a leader or follower, regarding pay (Pefeffer,1998). Meanwhile, if employees become aware of inequities in the pay system, disappointment and
often conflict can result. Some firms therefore maintain strict secrecy over pay matters.
In addressing the issue of pay dissatisfaction, Nelson et:al (2008) opined that “employers need to solve the right problem”. They went further to state that “potential sources of dissatisfaction include amount of pay and benefits, and how both raises and the overall pay plan are administered.
Winter (2000) maintained that: salary inequities can trigger a big response, with morale down due to widespread concerns about inequitable salaries; layoffs, and racial discrimination, suit etc.
In taking any decision about wages and salaries, human resources managers or directors should not handle or fix salaries with their whims, rather they should compare their intended amount with other firms or similar operations, through the e-mail, internet or by reading research reports on salaries and wages.
Supporting the above view, Mark (2000) revealed that smaller firms are making use of the internet in other ways. He further noted that the Human Resources Director of Stock-House Media Corps makes extensive use of the web for determining salaries for all the firm’s personnel.
Employee’s reactions about pay system fairness are related to organizational justice. Organizations usually want to pay market rate that is to match the ‘going rates’ paid employees by competitive organization. This agrees with the views of Brown and Wilsh (1995) when they posited that “fairness in pay is essentially concerned with the relationship between the pay of different individuals or groups: it is based on comparison … management will prefer to pay the ‘going rate’.
The view of Henderson (2000:85) tallies with Mark’s view, when he (Henderson) said that:
It is difficult to set pay rates if you don’t
know what others are paying, so salary
survey plays a big role in pricing jobs.
He noted that: “virtually every employer conducts at least an informal telephone, newspaper or internet salary survey”. Salary surveys can be formal or informal. Informal telephone or internet surveys are good for checking on a relatively small number of easily identified jobs (Watson Wytt Data Service, 1998).
Jaja (2000) noted that one of the obligations of the employees association is:
To ensure the orderly development of a good
labour management system, and in particular
to encourage the payment of equitable rate of
wages and salaries to workers, and to assist
members with advise on the settlement of
industrial disputes.
In Nigeria, wages and salary administration had been the function of the state policy is evidenced by the number of government salary and wage determination commissions and tribunals set up to fix or review existing salary structure in recent time ( Jaja, Ibid).
The in-equitability of wages among occupations within and outside a particular organization is one of the major sources of conflicts in an organization. There are five important factors always considered by prospective employees before accepting any job. They are:
- Job design
- Job degree of responsibility
- Job security
- The possibility for growth and
- Cost of learning the job
Many employees (and unions too) prefer wage payment that are geared to their performance. Organizations that shy away from pay for performance, and plan to protect employee income during inflation periods have reportedly a
dopted merit pay arrangement to induce higher productivity.
An employee’s pay structure is the cluster of pay levels associated with jobs in the organization. The pay structure defines the relationships between jobs in terms of pay.
According to Bratton and Gold (1999) some of the cogent questions that may arise from the issue of reward are:
- Why do some employers pay more (or less) than other employers in the same industry?
- Why do some employees’ performances change with a change in reward?
- Why are different jobs within the same organization paid differently?
- Why do different employees doing an identical job for the same employer receive different pay?
- How are these decisions made? And
- How does the government influences reward management?
The fundamental tension underlying the employment relationship makes for an unstable contract between the two parties, which is the context of global price competition and technological change is constantly being adjusted. To increase market ‘viability’, employers attempt to increase performance through payment of incentives or pay cut to reduce labour costs.
One of the most important question in modern reward theory is how closely should performance and rewards be linked? From human relations stand point, this question relates less to the specific types of reward that can be given, than it does to the reward system itself.
Stiles, Gratton, Truss, Hope-Vailey and Mchovern (1997:165) opined that:
By specific the new performance requirements
of employees as a result of strategic change
and the reward employees will receive upon
their fulfillment, management define new
expectations and so alter the employment
relationship.
Many companies appear to be rewarding the employees within the same organization and doing an identical job, at different pay levels. Some writers describe this changes in pay as revolutionary because they over throw the old assumption that employees should be paid the same, even though their contributions differ.
The question now in the minds of the watchers of the new reward system is whether the shift is an adhoc, reactive response to contextual changes or do the reported changes in reward systems represents a more proactive and strategic human resource management approach (Kessler, 1995).
A study by Poole and Jenkins(1998:58) concluded that:
At a policy level, human resource management
endorsed a s policies the rewards that link pay
with performance, and declared that, there is
little evidence of widespread adoption of many
of the ‘new pay’ practice.
A reward system that directly links pay to performance will requires an appraisal system that is both reliable and valid.
Milkovich and Newman (1990) seem to agree with Poole and Jenkins, when they noted that “adopting a competitive pay policy is akin to establishing a niche in product market; there are conventional and new directions in external pay polices”. However, there is little empirical evidence of the consequences of these different options.
Strategic reward should be founded on the proposition that the ultimate source of value is people. Reward strategy in the private sector should be business driven, responding to the needs of the business to compete, grow and innovate, but it is also a lever for change, rein-forcing and validating the thrust of the business. In the public and voluntary sectors, reward strategy is similarly driven by the organization to improve its overall effectiveness (Armstrong, 2006).
Organization must reward employees, because in return, they are looking for certain kinds of behaviour, they need competent individuals who agree to work with high level of performance and loyalty. Individual employees in exchange for their commitment, expect certain extrinsic rewards in the form of promotion, good salary, fringe benefits, perquisites, bonuses or stocks options. Individuals also seek intrinsic rewards such as feeling of competence, achievement, responsibility, significance influence, personal growth and meaningful contribution. Employees will judge the adequacy of their exchange with the organization by assessing both sets of rewards.
People’s feelings about the adequacy of their pay were based upon comparisons they make between their pay and the pay of other external market comparisons as the most critical,
because they are the ones which strongly influence whether individual want to stay with their organization (Lawler, 1990, Brown and Walsh 1995, Mark 2000, Henderson 2000, and Winter 2000).
Any system that purports reward for performance must obviously be able to measure performance. This requirement is often hard to satisfy, even in cases where employees produce or sell an identifiable product, as the case where individual and group incentive system exist, measures are often less satisfactory than desired.
According to Walsh (1995), … pay provides, however, misleadingly, the only common language of reward. It provides the natural focus for collective bargaining and the obvious channel into which discontents over the more intangible aspects of work can be displaced.
Employees consider the relationship between their performance, and rewards related to that performance, and then the fairness of the relationship. The final step in the process will have the employee setting new goals and expectations based on past experiences within organization (Currel et:al 1992).
If employees see little relationship between performance and reward, then they may set minimum goals in order to retain their job, but will not see the need to excel in their position. People work to get rewards for their efforts.
The above view coincides with Kabanoff (1991) when he opined that, “when people work, they expect to receive fair value (equity) for their efforts, and they expect the rewards received to be distributed fairly.
If employees believe that managers play favoritism, then the credibility of the entire pay system will be reviewed suspiciously (Greene, 1991).
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